What would you think if I told you that you might sell less of something if you set the price too low? I know, a lot of you will think that I am crazy, but honestly, it is true. I am talking about the concept of perceived value. What does that mean? Well, basically it means that if you set the price very low, people will perceive the item as poor, low value, etc.
One of the businesses that I am in is selling and delivering flowers in the Philippines. I sell a lot of flowers too, you can bet on that! Now, let’s think about something. Let’s say that you have a girlfriend here in the Philippines, and you are deeply in love with her. You plan to propose marriage to her. First, though, you want to send her some very special flowers to set the scene. OK, so when you come to my website and you see that I have two different bouquets of roses. The first bouquet is $2.99. The second one is $49.99. Which one are you going to buy? Well, if you care deeply for this girl, I have no doubt in my mind that you will be buying the $49.99 bouquet because in my mind you are thinking that anything that is $2.99 can’t be very special.
The same thing holds true for almost any product that you can think of. How about if I wrote an e-book about how to earn money online? If I had it for 99 cents, I wouldn’t sell many, because people would perceive that it had little information of much value in it. If I sold it for $99, a lot more people would be interested.
What does this all come down to? Well, it comes down to a video that was posted last week by a Video Blogger that I enjoy following. His name is Jim Kukral, and he is a marketing expert, particularly for online items. Give his video a look:
Now, what do you think? Do you price yourself too low? I think that the tendency for most people is to set their price way too low, practically giving the stuff away. If you set the price high, you can offer yourself another marketing capability – the ability to give a discount. If you tell somebody that the book is $99 (true), you could say that you are willing to give them a discount and offer it to them for only $79. They feel good, you make a nice amount of money – everybody is happy!
Push your price points up, and see if it doesn’t result in higher sales! I bet it will!
Ad good p[ost and goos subject, Bob. I would think that low pricing is one of the most prevelant reasons people both on and off line don’t make nearly the money they should. Price may be the reason people give for not buying … but it seldom is the real reason … and if they want to buy, price is almost no object.
All one has to do is take a look at says cars as an example. A car is an expensive purchase almost every American makes many times in his/her life … and it’s consumable and almost never an investment …always money tossed way, so to speak. yest how many Americans out there have ever bought the cheapest car avilable? hardly anyone, even thugh they all have 4 wheels, drink gas and get stuck in traffic, expensive and cheap alike.
If price meant much we would never see companies like BMW or Cadillac. People buy the cra with the perceived value to them, not the cheapest.
Who would rather work in a discount used car lot rather than in a Mercedes dealership, he? You know which one has the cheap cars, you also know which job will pay you by far the most money.
Hi Bob, Just a quick comment. A while back I was reading through your virtual earner in regards to selling on e bay. You had said something in reference to the auction process of starting out as low as possible with the bid to generate more participation and with the end result being a sold product at a higher price. Is this a good thing in that instance? or would it be better to sell outright at a higher price making the product looking like something of value therefore making a profit.
Hi Dave – I know a guy that was planning on putting up some e-commerce sites a few years ago. He told me that he wanted to keep his prices low, so he was planning to markup everything just 8%. I told him that was a recipe for disaster, because he would not be covering his costs. He looked at me and said that if he went up 8% from what he paid, how could I say he was not covering his costs. I told him then that he had to pay for credit card processing, web hosting, employees to handle the goods, etc., etc., etc. He still didn’t seem to get it, though! 😆
Hi Tony Grosse – I consider pricing things that you sell or services that you offer a much different situation than auctions. On an auction, people are specifically looking for cheap. Then, when the price starts rising due to competition, they have a commitment and want the item, and are thus willing to bid it up. That is different from making a straight purchase. Good question, though! You are really following along on the site and absorbing the information! 😆
Interesting that this topic would come up since you and I have been having a conversation about how best to price things to maximize profits. I think many of price ourselves too low and could do much better.
Hi Tom – Yes, I have been thinking about this very topic while mulling over our current offline conversation. I believe that most people set their prices too low, and that does not necessarily lead to more business.